Unexpected Returns: A Course of Insights is a complimentary online, on-demand video-based presentation series delivered by Ed Easterling that discusses key concepts from his book Unexpected Returns. He combines the teaching style from his experience as an Adjunct Professor with the edutainment style from his ongoing experience as an industry speaker. This presentation series includes six videos describing concepts of long-term stock market cycles, investment returns, market valuation, volatility, compounded returns, and investment approach. Each video runs approximately 30 minutes. The first two videos address the basic principles that drive the variation in stock market returns over decade-long periods, the components of stock market returns, implications about the inflation rate, and the impact of volatility on compounded returns.
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There was a time when many investors focused on short-term stock investing results. Bulls were those who expected stocks to do well in the next year or two or three. Bears were those who expected stocks to do poorly in the next year or two or three.
We still often hear the bull vs. In recent decades, most investors have learned that the short-term is unpredictable. This is progress. We have advanced in our knowledge of how markets work and of how to use that knowledge to accumulate wealth over time.
Is the long-term 5 years? Is it 10 years? Is it 15 years? Is it 20 years? Is it 25 years? Is it 30 years? Is it 40 years? In the event that stocks perform in the future anything at all as they always have in the past, it could take a long time indeed for stocks to provide a return that justified taking on the wild short-term volatility of this asset class. Ed Easterling is planting his insights in the same fertile soil.
Unexpected Returns is not yet another investing book parroting the same stale insights you have read or heard discussed dozens of times before. Regular readers of this site know that I am a big advocate of buy-and-hold investing.
I am not at all an advocate of the conventional approach to buy-and-hold, however. The old buy-and-hold is dangerous stuff. Easterling is not a fan of the flawed approach to buy-and-hold. By contrast, the conventional wisdom of buy-and-hold was devastating to investors during the s and s; it simply does not work in all environments.
Um — it does not work quite like that. At times like today, riskier assets often promise lower returns than safe assets. It makes no rational sense, but then who said that us human investors must always be big on rationality when making our investment choices? If investing decisions were entirely rational, stock prices could never get to where they are today, could they? Ed Easterling gets it.
They [investors] naively approach investments with a mistaken confidence in future returns by assuming that higher risk means only near-term volatility rather than permanent losses to their account…. History and the operation of rational markets have shown that stocks should return more than bonds over the very long term, but the degree of risk in stocks varies greatly depending on market valuations.
Bravo, Ed Easterling! He tells it like it is. Over longer periods of time, prices tend to reflect the value of securities.
In the short run, prices can vary significantly from the underlying value based upon the daily battle between buyers and sellers.
There are pockets of efficiency in the stock market. Investing decisions are not entirely emotional. In the real world, most investors are focused on significantly shorter time-periods. They do not accumulate substantial assets until they are in their 40s, and need to begin drawing on those assets in their 60s.
They save to have something to fall back on when hit by economic recesssions or corporate restructurings. They save to be able to afford college for their children. They save to move into bigger houses. They save to be able to start their own businesses. There are no allocation rules that work equally well for all investors.
Some of us begin to accumulate investable assets when stock prices are low and long-term returns are highly attractive. Others of us begin to accumulate investable assets when stock prices are high and safer asset classes offer more appealing long-term returns. Should both types of investors be going with the same stock allocation early in their investing careers? If the latter group wants to earn solid long-term returns from stocks, it needs to protect its assets until prices return to reasonable levels.
Periods that start with lower valuations tend to have higher returns, while periods that start with higher valuations tend to have lower returns. Our common sense tells us this has to be so. Most investors raise their stock allocations far too high when prices go to the moon and then lower them far too much when prices go to the bottom of the ocean. The nice warm feeling of obtaining outsized returns for a long stretch of time during a secular bull market causes us to come to a flawed understanding of how stocks really work.
Volatility is relatively muted during long-running bulls too. As you might expect, the higher volatility that occurs during bear markets adds greatly to the discomfort and anxiety felt by investors who experience declining markets. Stocks are sometimes a good investment for the long run. Not today, though. The potential return is too limited. The potential downside is an ocean of pain. It took a bubble in the late s to break through this natural barrier temporarily.
Navigation Menu. Phase Two Digoxin was stopped in duloxetine generic prices patients taking Coreg.. Long live the new buy-and-hold! Valuations matter. Where have we heard that tune before?
Books & Videos
Ed Easterling of Crestmont Research boils down his views on long term markets to 12 rules of secular stock market cycles. Secular cycles are driven by the inflation rate deflation, price stability, and higher inflation. Cyclical cycles are driven by market psychology, illiquidity, or other generally temporary condition s. If economic growth shifts upward or downward for the foreseeable future, the natural range moves upward or downward, respectively.
A Cheat Sheet for Ed Easterling’s Unexpected Returns
There was a time when many investors focused on short-term stock investing results. Bulls were those who expected stocks to do well in the next year or two or three. Bears were those who expected stocks to do poorly in the next year or two or three. We still often hear the bull vs. In recent decades, most investors have learned that the short-term is unpredictable. This is progress.